DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte

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DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
MINISTRY OF PLANNING AND INVESTMENT
     FOREIGN INVESTMENT AGENCY

DOING BUSINESS IN VIETNAM 2020
            Investing in Vietnam, Engaging the world
DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
Abbreviation                               3          II. Customs Duty and Procedures                       52
Introduction                               5          III. Land Rental Incentives                           56
A. Country Profile                         6          E. Human Resources and Employment 58
B. Trade and Investment                  12           F. Foreign Exchange Control                           65
I. Trade Agreement                       13           Useful websites                                       68
II. Foreign Direct Investment            13           Deloitte Vietnam                                      71
C. Setting up an investment in Vietnam   17           Foreign Investment Agency                             72
D. Taxation and Customs                  25
I. Taxation                              26

2                                        Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
ABBREVIATION
APA      Advance Pricing Agreement             FTA    Free Trade Agreement
APEC     Asia-Pacific Economic Cooperation     GDP    Gross Domestic Product
ASEAN Association of Southeast Asian           GSO    General Statistics Office
      Nations
BCC      Business Cooperation Contract         IMF    International Monetary Fund
BLT      Build-Lease-Transfer                  IRC    Investment Registration
                                                      Certificate
BOO      Build-Own-Operate                     IP     Industrial Park
BOT      Build-Operate-Transfer                M&A    Mergers & Acquisitions
BT       Build-Transfer                        O&M    Operate & Manage
BTL      Build-Transfer-Lease                  OECD   Organization for Economic
                                                      Cooperation and Development
BTO      Build-Transfer-Operate                PIT    Personal Income Tax
CIT      Corporate Income Tax                  PPP    Public-Private Partnership
CPTPP    Comprehensive and Progressive         RCEP   Regional Comprehensive
         Agreement for Trans-Pacific                  Economic Partnership
         Partnership
DTA      Double Taxation Avoidance             SST    Special Sales Tax
         Agreement
EPE      Export Processing Enterprise          USD    US Dollar
EPZ      Export Processing Zone                VAS    Vietnamese Accounting Standards
ERC      Enterprise Registration Certificate   VAT    Value Added Tax
EZ       Economic Zone                         VND    Vietnamese Dong
FCWT     Foreign Contractor Withholding Tax WTO       World Trade Organization
FDI      Foreign Direct Investment

                                                                                    3
DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
4   Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
INTRODUCTION

I
    n more than 30 years of social-         a centralized to a market oriented
                                            economy and its 96.92 million-strong
    Vietnam has moved from being            population, which features a large
one of the poorest nations in the world     and young workforce as well as
to a lower middle-income country            an increase in disposable income
with a number of convincing social-         in recent years. The Vietnamese
economic achievements. Joining the          Government has done an excellent job
Association of Southeast Asian Nations
(ASEAN) in 1995
Economic Cooperation (APEC) in 1998         2.79 percent (2019).
and the World Trade Organisation
(WTO) in 2007; expanding gross              This guidebook was prepared by the
domestic product (GDP); improving           Foreign Investment Agency of
infrastructure; and a steady increase       Vietnam in cooperation with Deloitte
in foreign direct investment (FDI)          Vietnam to provide readers with an
suggest that Vietnam has transformed        overview of the investment climate,
into an attractive investment               forms of business organization,
destination.                                taxation, and business and accounting
                                            practices in Vietnam. Although we do
Vietnam has been enjoying strong            our best to ensure that information
economic growth. Since 1990,                contained in this book is current at
                                            the time of writing, the rapid changes
Vietnam’s GDP per capita growth has
                                            in Vietnam mean that laws and
been among the fastest in the world,
                                            regulations may change to reflect the
averaging 6.4 per cent a year in the
                                            new conditions. We hope that you
2000s. Despite crisis and uncertainties
                                            find this book useful in your endeavour
in the global environment, Vietnam’s
                                            to expand your business in Vietnam.
economy continues to grow, with GDP
expanding by 7.02 per cent in 2019,
                                            Ministry of Planning and
and is expected to continue on this path.
                                            Investment of Vietnam
                                            Foreign Investment Agency
Overseas businesses are increasingly
attracted by the country’s move from

                                                                                     5
DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
A COUNTRY PROFILE

                 COUNTRY PROFILE
Vietnam’s economy continues its fast growth driven by free trade
agreements (FTAs) with major developed countries and increasingly
deregulated business environment.

    VIETNAM
Strategically located at the centre of Southeast Asia with convenient
access to commodity and cultural exchange.

        A stable political                    A youthful and vibrant
        environment, and an
                                         country with digitally-savvy
        attractive business
        environment with                and well-educated workforce,
        high incentives for                   a developing culture of
        foreign investors.                    entrepreneurship, and
                                              openness to new ideas.

        Competitive production
        cost compared to                     Fast growing economy with
        neighboring countries.               GDP growth projected to be
                                               between 6% to 7% during
                                                       2016-2019 period.

        16 FTAs with major
        developed markets.

6                                Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
COUNTRY SNAPSHOT

 LOCATION                                                        POPULATION AND WORKFORCE
 Southeast Asia                                                  Population: was estimated at 96.92 million people
 The country borders with China, Laos, Cambodia,                 Ranked 15th in the list of most populated countries
 Pacific Ocean and Gulf of Thailand                              People of working age in employment: 48.7 million
                                                                 people (51.2% of total population)
                                                                 Unemployment rate: 2%

 LAND AREA
 330,967 sq. km
                                                                 ECONOMY
                                                                 Nominal GDP ( 2019): USD 261.9 billion
                                                                 GDP in 2019 increase by 7.02%,
 COASTLINE                                                       the highest growth since 2011
 3,260 km                                                        GDP per capita (2019): USD 2739.82

 5 MUNICIPALITIES & 58 PROVINCES                                 LANGUAGE
 North: Hanoi – the capital                                      Vietnamese (official language)
 Centre: Da Nang City                                            English (taught widely at school as a second language)
 South: Ho Chi Minh City – the largest city

 CLIMATE AND WEATHER                                             BUSINESS HOURS
 The climate varies from North to South with three               Under the Vietnamese Labor Code, normal working
                                                                 hours should be 8 hours/day, or 40 - 48 hours/week.
 distinctive climate zones: tropical in the South (rainy
 season from April to September; dry season from
 October to March); monsoonal with hot and rainy
 season in the Centre and North (May to September);
 cold and damp in the highlands and the North
 (October to March). It is also blessed with plenty of
 sun throughout the year.                                        CURRENCY
                                                                 Vietnamese Dong (VND)

Source: General Statistics Office (GSO), Economist Intelligence Unit

                                                                                                                       7
DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
POLITICAL STRUCTURE
Vietnam is a socialist country under the leadership of the Communist Party
of Vietnam. The 14th National Assembly of Vietnam (term 2016-2021) has
489
Assembly, which is the highest-level representative body of Vietnamese people,
has the power to exercise constitutional and legislative rights and to decide on
critical issues of the country.

8                                   Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
GDP BY SECTOR, 2018
8.0%
7.5%                                                                             Product tax (net)
                                                            7.08%                                                                          Agriculture,
7.0%                                                                   7.02%                                        10%
                                                                                                                                          Forestry and
                                                  6.81%                                                                                         Fishery
6.5%                           6.68%                                                                                       15%
                                                                                                            41%
                                        6.21%
6.0%              5.98%                                                          Services

5.5%     5.42%                                                                                                       34%

5.0%
                                                                                                                                         Industry &
4.5%                                                                                                                                   Construction
4.0%
                                                            2018 2019

                                                                                                       RETAIL SALES
                                                                                                            (billion USD)

       6.60%                                                                       250                                                     173
                                                                                                                                                      195
                                                                                                                                 168
                  4.09%                                                            200                        140
                                                                                                                     154

                                                  3.53%     3.54%                                    125
                                                                                            111
                                                                       2.79%       150
                                        2.66%
                                                                                   100
                                                                                    50
                               0.63%
                                                                                      0
                                                            2018 2019                                                                             2018

                                                                      2018           MAIN EXPORT PARTNERS, 2018
                                                                                                           (share of total)
                                                                                 Germany 11%
                                                                                                                                                 US 46%
                                                                                 South Korea 16%
                                                                       243 237

                                                            214 211
                                                180
                                                      173
                     150 148       162 166

        132 131
                                                                                 Japan 18%

                                                                                                                                           China 40%

                                                                       2018

Source: GSO

                                                                                                                                                            9
DOING BUSINESS IN VIETNAM 2020 - Investing in Vietnam, Engaging the world - MINISTRY OF PLANNING AND INVESTMENT - Deloitte
A COUNTRY PROFILE

REGULATORY REFORM TO IMPROVE INVESTMENT CLIMATE
 The regulatory framework has been constantly revised to incorporate more
 favorable regulations for businesses to invest and operate in Vietnam. Since the
 new Law on Investment and the new Law on Enterprises were passed in 2014,
 many other laws, decrees and circulars have been put in place to provide
 guidelines for better market access.

 VIETNAMESE GOVERNMENT’S EFFORTS TO IMPROVE INVESTMENT CLIMATE
        - Law No. 67/2014/QH13 on Investment
        - Law No. 68/2014/QH13 on Enterprises
 2014

        - Decree No. 46/2014/ND-CP provides regulations on collection of land rent and water surface rent
        - Circular No. 78/2014/TT-BTC guides the implementation of the Law on CIT
        - Circular No. 103/2014/TT-BTC provides guidelines for fulfillment of tax liability of foreign entities doing business
        in Vietnam or earning income in Vietnam

        - Decree No. 118/2015/ND-CP provides guidelines for some articles of the Law on Investment
        - Decree No. 96/2015/ND-CP provides guidelines for some articles of the Law on Enterprises
 2015

        - Decree No. 15/2015/ND-CP on investment in the form of public-private partnership
        - Circular No. 38/2015/TT-BTC on customs procedures, customs supervision and inspection, export tax, import tax,
        and tax administration

        - Law No. 107/2016/QH13 on Export and Import Duties
        - Decree No. 134/2016/ND-CP provides guidelines for the Law on Export and Import Duties
 2016

        - Circular No. 83/2016/TT-BTC guides the implementation of investment incentive programs
        - Circular No. 130/2016/TT-BTC on guidelines on some articles of the Law on Value Added Tax, and the Law on
        Special Sales Tax
        - Law No. 04/2017/QH14 about provision of assistance for small and medium-sized enterprises (coming into force
 2017

        from January 1st, 2018)
        - Decree No.32/2017/ND-CP on state investment credit
        - Decision No. 3610A/QD-BCT slashes 675 conditions on business and investment under state management

        - Decree No. 119/2018/ND-CP on electronic invoices for sale of goods and provision of services
        - Decree No. 09/2018/ND-CP on trading activities of foreign investors
 2018

        - Decree No. 08/2018/ND-CP on business conditions under State management of the Ministry of Industry and
        Trade
        - Circular No. 25/2018/TT-BTC on amendments of some articles of Circular 78/2014/TT-BTC and Circular
        111/2013/TT-BTC

        - Resolution No. 50/NQ-TW on the direction of completing institutions and policies, improving the quality and
        efficiency of foreign investment cooperation by 2030
        - Resolution 23-NQ/TW on the national industry development strategy during 2018-2030
        - Amended Law on Tax Administration No. 38/2019/QH14 (effective from 1 July 2020)
 2019

        - Decree No. 14/2019/ND-CP providing guidelines for the law on special sales tax
        - Decree No. 05/2019/ND-CP provides a legal framework for the establishment and implementation of Internal Audit
        - Circular No. 48/2019/TT-BTC on the making and settlement of provisions for devaluation of inventory, losses of
        financial investments, bad debts and warranty at enterprises
        - Draft amended Laws on Investment/Enterprises/Securities

10                                                     Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
RESTRUCTURING AND EQUITISING STATE-OWNED ENTERPRISES
The Vietnamese Government upholds its commitments to economic reform. The
equitisation of state-owned enterprises (SOEs) in recent years is an example

economy forward. The 2016-2020 roadmap for the equitisation of SOEs has been
outlined in Decision No. 58/2016/QD-TTg.

                                                              220
NUMBER OF EQUITISED
SOES DURING 2011-2018
                                                175

                                  73
                                                                            55
                                                                                   45

                    26                                                                    23
      14

    2011           2012          2013          2014          2015           2016   2017   2018
Source: Vietnam Government Report on the equitisation of SOEs (2011-2018)

                                                                                                 11
TRADE AND
     INVESTMENT

12
Bilateral agreements
                                          - Vietnam – Chile
                                          - Vietnam – South Korea
                                          - Vietnam – Japan
                                          - Vietnam - Eurasian Economic
                                          Union FTA
                                          - Vietnam – EU FTA (not yet effective)
                                          - Vietnam – Israel (in negotiation)
                                          - Vietnam – EFTA (in negotiation)

                                         Vietnam has established diplomatic
  I. TRADE AGREEMENT                     relations with 185 countries, expanded
Vietnam has been actively engaging       commercial and investment relations
in a number of free trade agreements     with more than 220 markets and signed
to help accelerate the country’s         more than 80 Double Tax Avoidance
integration into global economy in       Agreements.
recent years. Key trade pacts include:
                                          II. FOREIGN DIRECT INVESTMENT
 ASEAN Economic Community
                                         According to the Foreign Investment
 (launched in December 2015)
                                         Agency under the Ministry of Planning
                                         and Investment, the total newly
 Comprehensive and                       registered, adjusted capital, capital
 Progressive Agreement for Trans-        contributed and shares purchased by
                                         foreign investors reached 38.2 billion USD,
 (signed on March 8th, 2018)             increase 7.2% as compare to the same
                                         period in 2018. The realized capital of
 Regional Comprehensive                  foreign direct investment projects was
 Economic Partnership (RCEP)             estimated at 20.38 billion USD, up 6.7%
 (on-going negotiation)                  as compared to the same period in 2018.
                                         Higher FDI disbursement throughout the
                                         years implies the improvement in
 Free trade agreements signed as an
                                         investors’ confidence in the economic
 ASEAN member country
                                         outlook and their commitment to
 - ASEAN - Japan
                                         establish long-term investments in
 - ASEAN - South Korea
                                         Vietnam.
 - ASEAN - India
 - ASEAN - China                         Vietnam is one of the only few countries
 - ASEAN - Hong Kong                     in the region that allows 100% foreign
 - ASEAN - Australia - New Zealand       ownership for most sectors. 375 SOEs
                                         will be partially or wholly divested
                                         during 2017-2020 period.
                                                                                    13
B TRADE AND INVESTMENT

  INVESTMENT INDUSTRIES
  Vietnam has become an attractive                                                                          Real Estate: The investment in real
  investment destination for various                                                                        estate sector accounted for 10 per
  sectors, from manufacturing,                                                                                                               2018. Ho
  real estate, energy, retail, and                                                                          Chi Minh City stands out as the hub
  construction, to arts, tourism,                                                                           to attract most of the large-scale real
  entertainment, and other services.                                                                        estate projects.

        Manufacturing: With advantages                                                                      Other sectors: Green energy,
        in a number of areas such as                                                                        science & technology, wholesales,
        competitive labor cost, raw                                                                         and infrastructure development are
        materials resources, lower                                                                          entering a booming period, as the
        barriers to trade, and many                                                                         Government has given these sectors
        designated investment incentives,                                                                   priorities for development through
        the manufacturing sector remains                                                                    incentives and encouragement to
                                                                                                            attract investors. Investment in these
        2019, accounting for around 65                                                                      sectors is expected to increase in the
                                                                                                            years to come.

        REGISTERED AND DISBURSED FDI (2015-2019)                                                                              FDI BY SECTOR (2019)

                                                                                                                                   14%
                                                                                                                            4%
              40,000                                       35,602                              38,019
                                                                             35,466
                                                                                                                           7%
Million USD

              30,000
                                         26,891
                       24,115
                                                                                                                           10%              65%
                                                                                                        20,380
                                                                                      19,100
              20,000            14,500
                                                  15,800
                                                                    17,700

              10,000

                  0
                        2015              2016              2017              2018              2019             Manufacturing                    Real Estate
                                                                                                                 Professional activities,         Wholesale,
                           Registered FDI                     Disbursed FDI                                      science and technology           Retail & Repair
                                                                                                                                                  Others

14                                                                                Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
MAIN EXPORT PARTNERS,

   TOP 10 FOREIGN INVESTORS BY REGISTERED CAPITAL (AS OF DECEMBER, 2019)

                    80,000
                    70,000
                    60,000
Invesment Capital

                    50,000
  (million USD)

                    40,000
                    30,000
                    20,000
                    10,000
                         0
                                                    g                                                           s
                                     rea          on            ore      an     ina        an                 nd      mo
                                                                                                                         a
                                                                                                                                  an
                                                                                                                                     d        nd
                                   Ko          gK            ap       Jap     Ch      Ta
                                                                                        iw                Isla      Sa         ail         lla
                             uth
                                              n             g                                          in                    Th          Ho
                         So                Ho           Sin                                        Vir
                                                                                                      g
                                                                                              tish
                                                                                           Bri
Source: Foreign Investment Agency

Foreign investors usually select                                               industrial parks (IPs)/economic zones
densely populated cities with modern                                           (EZs) where the infrastructure and
infrastructure and agglomerated                                                transportation are specialized, and
convenience (e.g. Hanoi, Ho Chi                                                special investment incentives are
Minh City, Da Nang) to implement                                               given. FDI capital invested at IPs and
service-related projects. Whereas,                                             EZs accounted for roughly
manufacturing and processing                                                   80% of total registered capital in
investment projects are often located at                                       manufacturing sector.

                                                                       17 COASTAL
                                                                       ECONOMIC ZONES

326 INDUSTRIAL PARKS                                                                                    3 HI-TECH PARKS
                                                                                                        – Hoa Lac Hi-tech Park
                                                                                                        – Saigon Hi-tech Park
                                                                                                        – Da Nang Hi-tech Park

                                                                                                                                                   15
B TRADE AND INVESTMENT

M&A TRANSACTIONS HEAD TO BREAKTHROUGHS IN 2019
The Government is establishing mechanism and policies to facilitate the private
sector to join the State-owned enterprises (SOEs) restructuring process through
capital contribution and share purchase as well as enhancing linkages in value
chain between the SOEs and the private sector.

The value of M&A transactions increased from US$1.1 billion in 2009 to US$7.64
billion in 2018. The total value of transactions in the decade hit US$55 billion.
However, the value of M&A transactions in the first half of 2019 leveled off at
US$1.9 billion, equal to 53% of the same period last year.

According to the statistics of the Foreign Investment Agency, under the Ministry of
Planning and Investment, foreign investors spent US$2.64 billion to purchase
shares.

Positive factors are opening a new era for M&A activities in Viet Nam with a
number of opportunities for breakthrough and making M&A become a crucial
investment attraction channel in the time ahead.

M&A market in Viet Nam expects strong developments in the issuance and
realization of policies as well as connectivity, trade transactions and innovation of
buyers and sellers.

16                                    Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
SETTING UP AN
INVESTMENT IN
   VIETNAM

                17
C SETTING UP AN INVESTMENT IN VIETNAM

                           ESTABLISHING A NEW                                    Some main corporate
                           BUSINESS ENTITY                                       forms of doing business
                                                                                 in Vietnam include: (1)
                                                                                 Limited-liability company
                           INVESTMENT VIA M&A                                    with one or more members;
                                                                                 (2) Joint-stock company; (3)
                                                                                 Partnership; (4) Business
                           OTHER FORMS OF INVESTMENT                             Cooperation Contract; and
                           (i.e. participating in contractual business
                                                                                 (5) Public-Private
                           forms or purchasing stakes of an existing
                           enterprise)                                           Partnership Contract.

     LIMITED LIABILITY COMPANY                                 A limited liability company is a legal
                                                               entity established by capital contribution
                                                               which is treated as equity (or charter
                                                               capital) from its members. A limited
                         ty Compa
               Liabili              ny    Established          liability company is not allowed to issue
         ted
      mi                                   by capital          shares. The total number of members in
     Li

                                          contribution         a limited liability company is restricted to
                                                               50 (applied to form of a limited liability
                                                               company with more than two members).
                                            Maximum of         Members of a limited liability company
                                            50 members
                                                               the limited liability company within the
                                                               capital contributed – or undertaken to be
                                  Members are                  contributed - to the company.
      Not allowed            liable for the nancial
       to issue                 obligations within
        shares                                                 A limited liability company may be
                                    the capital
                                   contributed                 established by foreign investors either in
                                                               one of the two following forms:
                                                               i. A 100% foreign-owned enterprise
                                                                   (where all members are foreign
                                                                   investors); or
                                                               ii. A joint-venture enterprise with at
                                                                   least one Vietnamese investor.

18                                                        Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
JOINT STOCK COMPANY                                    A joint stock company is a legal entity established
                                                            by its founding shareholders on the basis of their
                                                            subscription of shares of the joint stock company.
                                Established by
                                 its founding
                                                            The charter capital of a joint stock company is
                               shareholders on              divided into shares and each founding shareholder
                p    any       the basis of their           holds a number of shares corresponding to their
            Com                 subscription of             subscribed and paid-up shares in the joint stock
   ck

                                     shares
Joint Sto

                                                            company.
                                     At least three
                                     shareholders           A joint stock company is required to have at least
                                  (with no maximum          three shareholders (with no maximum number of
                                      number of             shareholders). A joint stock company may take
                                    shareholders)
                                                            the form of either (i) 100% foreign-owned; or (ii) a
                                                            joint venture between foreign and domestic
                                                            investors.

     PARTNERSHIP
             sh
        rtner ip
                                     Managing
      Pa                           partners have            A partnership may be established between two
                               unlimited liability for      individual managing partners. The managing
                               all obligations of the       partners have unlimited liability for all
                                    partnership
                                                            obligations of the partnership. Besides managing
                                                            partners, a partnership may have contributing
                          Contributing
                       partners only liable
                                                            obligations of the partnership up to the value
                        obligations of the
                      partnership up to their
                                                            of their contributed capital.
                           contributed
                             capital

     BUSINESS COOPERATION                                   A Business Cooperation Contract (BCC) is normally
     CONTRACT                                               signed between foreign investors and Vietnamese
                                    Signed between
                                                            investors in order to carry out certain business
                                 foreign investors and      activities.
                     ontract     Vietnamese investors
                nC
            tio                 without the creation of a
                                                            BCC is executed without the creation of a new legal
                                    new legal entity
 ness opera

                                                            entity. Instead, parties to a BCC shall establish a
                                                            co-ordination board to implement and oversee the
     Co

                                    BCC’s parties           BCC. The investors to a BCC mutually agree on
                                  hold unlimited
       si

                                                            allocation of responsibilities and sharing of
    Bu

                                  liability for the
                                                            profits/losses arising from a BCC. BCC’s parties hold
                                    of the BCC              unlimited liability for the financial obligations of
                                                            the BCC.

                                                                                                                   19
C SETTING UP AN INVESTMENT IN VIETNAM

                                                   A Public-Private Partnership (PPP) contract is
     PUBLIC-PRIVATE
                                                   an investment form set up on the basis of a
     PARTNERSHIP                                   contract between relevant government
                                                   authorities and project companies to perform
                                                   certain regulated infrastructure works and
                 artnership                        public services, e.g. transportation system,
            eP
        vat                      Comprise BOT,     water supply system, power plants, educational
       Pri

                                 BT, BTO, BOO,     and healthcare-related infrastructure, etc.
Public-

                                 BTL, BLT, O&M
                                   Contracts
                                                   PPP Contracts comprise Build-Operate-Transfer
                                                   (BOT), Build-Transfer (BT), Build-Transfer-
                                Set up             Operate (BTO), Build-Own-Operate (BOO),
                      on the basis of a contract   Build-Transfer-Lease (BTL), Build–Lease-
                    between relevant government
                        authorities and project    Transfer (BLT) and Operate-Manage (O&M)
                    companies to perform certain   Contracts.
                       regulated infrastructure
                          works and public
                               services
                                                   After signing PPP contracts with an authorized
                                                   state agency, foreign investors must establish a
                                                   project company in the form of a limited
                                                   liability company or a joint stock company.
                                                   PPP contracts clearly set out the rights and
                                                   obligations of foreign investors to such contracts.

20
MERGERS AND ACQUISITIONS
The legal framework for M&A is set out under the Law on Enterprise and Law on
Investment and their guiding documents, which cover conditions, procedures
and tax consequences of such activities.

The Competition Law also has an effect on M&A activities. Where a merger or
acquisition may result in a legal entity with a market share accounting for 30%
to 50% of the relevant market, the legal representative of such entity must notify
the competition management body before the merger/acquisition is implemented,
unless the law provides otherwise. A merger or acquisition that results in a new
entity with its market share accounting for more than 50% of the relevant
market is prohibited, unless otherwise stipulated in the Competition Law.

Other investment forms
All indirect investment activities of foreign investors in Vietnam must be
conducted in Vietnamese Dong via an indirectly-invested capital account opened
at a permitted bank. Balances in indirectly-invested capital accounts of foreign
investors cannot be converted into time deposits, or saving deposits at credit
institutions and foreign bank branches.

Below are examples of frequently-conducted indirect investment activities in
Vietnam.

 Capital contribution, sale/purchase        Capital contribution, transfer of
      of shares or contributed               contributed capital in securities
  capital in Vietnamese enterprises             investment funds and fund
   without directly participating in       management enterprises in accordance
   the enterprise management and                with the laws on securities
            administration

  Sale/purchase of other valuable
                                            Sale/purchase of bonds and other
      papers in Vietnamese dong
                                             types of stocks in the Vietnamese
  permitted to issue within Vietnam’s
                                                     securities market
 territory by organizational residents

                                                                                 21
C SETTING UP AN INVESTMENT IN VIETNAM

                        SETTING UP A NEW BUSINESS
PROCEDURES FOR COMPANY SET-UP
In order to legally carry out business activities in Vietnam, foreign investors
must register their investment with the appropriate licensing authorities. Under
the new Law on Investment and Law on Enterprises, foreign investors now go
through two steps:

PROCEDURES FOR NEW COMPANY SET-UP

             Step 1                                 Step 2                                   Step 3

                                       15 days                  3 days                      5-7 days

            Location                     IRC                     ERC                         Public
            Selection                 Application             Application                  Notification

(*) The timeline for setting-up projects prioritized by national or provincial Government shall be shortened.
(**) Please note that IRC is required only for investments by foreign investors or deemed-to-be foreign investors
(i.e. companies with more than 51% of charter capital held by foreign ownership).

PROCEDURES FOR BRANCH, REPRESENTATIVE OFFICE SET-UP

          Step 1                      Step 2                         Step 3                           Step 4

                                       7 days                       5-7 days                        5-7 days

         Location              RO/Branch License                  Seal/Tax ID                       Public
         Selection                Application                     Registration                    Notification

22                                                  Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
As part of the set-up procedures, various types of documents will be required
depending on the type of company/business activities that is being set up, etc.
All legal documents issued by overseas authorities must be translated into
Vietnamese and must be validated by the Vietnamese Embassy in the home
country of the investor.

RELEVANT LICENSING AUTHORITIES
          CERTIFICATE                       IRC                            ERC

  Projects located INSIDE       Provincial Management Board
  industrial zones, export      of Industrial/ Economic Zones
  processing zones, high-tech
  zones & economic zones                                        Provincial Department of
                                                                Planning and Investment
  Projects located OUTSIDE      Provincial Department of
  industrial zones, export      Planning and Investment
  processing zones, high-tech
  zones & economic zones

LIQUIDATION AND CLOSING BUSINESS
The termination, liquidation, or dissolution, of an enterprise shall occur in the
following circumstances:

  The operation period in the                       The dissolution is decided by
  company’s charter expires                         owners/ general partners/ board of
  without a decision on extension                   members/ shareholders

  Failure to maintain minimum
  required number of members                         Business Registration
  for 6 consecutive months
  without business conversion

                                                                                           23
C SETTING UP AN INVESTMENT IN VIETNAM

The company shall be dissolved only when all debts and liabilities are settled
and the company is not involved in any dispute at a court or arbitration body.
The liquidation procedures generally take about 6 - 12 months, which normally

        Step 1    NOTIFICATION OF DISSOLUTION DECISION
                                                               Business
                                                              Registration              Tax Authority
                                                               Authority
                                  7 days
                            from approval date                 National
                                                              Business                   Employees
                                                          Registration Portal

        Step 2    TAX FINALISATION / TAX AUDIT & TAX CODE CANCELLATION

                               2-3 months
                                                                         Tax Authority

        Step 3    SUBMIT DISSOLUTION DOSSIERS & RETURN IRC/ERC

                                  5 days                                 Business
                                                                         Registration
                         from debt clearance date                        Authority

24                                    Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS

                         D
                   TAXATION AND
                     CUSTOMS

                                  25
I. TAXATION
     The Vietnamese tax system is comprised of the following:

     i.   Corporate Income Tax (CIT);
     ii. Personal Income Tax (PIT);
     iii. Value Added Tax (VAT);
     iv. Foreign Contractor Withholding Tax (FCWT); and
     v. Other taxes (i.e. Special Sales Tax, Import & Export Duties, Natural
        Resources Tax, Property Tax, Environment Protection Tax, Business
        License Duty & Registration Fee).

          All taxes are levied at the national level. There are no local taxes.

          Please refer to the following pages for your further reading.

           Type of Tax                                                       Page
           Corporate Income Tax                                                 28

           Personal Income Tax                                                  34

           Value Added Tax                                                      39

           Foreign Contractor Withholding Tax                                   44

           Other Taxes                                                          51

           Special Sales Tax                                                    51

           Environment Protection Tax                                           52

26                                       Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS

TAX COMPLIANCE TIMELINE

 NO. TAX TYPE/ TIME LIMIT           MONTHLY                          QUARTERLY              FINALIZATION
                                    20 day of the following
                                      th
                                                                     30 day of
                                                                       th
                                                                                            90th day from
                                    month                            the following
                                                                     quarter                or calendar
                                                                                            year-end date
 1      Corporate Income Tax        N/A                                (provisional
                                                                     payment only)
 2      Personal Income Tax                                            (*)                  (calendar year)
 3      Value Added Tax                                                (**)                 N/A
 4      Foreign Contractor          10th day following the payment day; or 20th of the month
        Withholding Tax             following the payment month if registering to file FCWT on a
                                    monthly basis
 5      Compulsory Social/          The last day of the month
        Health/ Unemployment
        Insurance
 6      Stamp Duty                  Upon occurrence
 7      Export Duty                 Upon occurrence
 8      Import Duty                 Upon occurrence

                                                                50
shall be applicable.

                                                                      12-month operation within a

                                                                             50 billion or less, otherwise the

monthly basis or quarterly basis.

                                                                                                                 27
CORPORATE INCOME TAX (CIT)
     TAXPAYERS

                    1                                                          2
                                                                          Foreign
                 Vietnam-                                            enterprises with or
               incorporated                                          without Permanent
                enterprises                                            Establishment
                                                                            (PE)

                                                                                                 Service
                                                       Branches/Agents                           establishment

                                                       Plants/
                                                       Construction sites                        Others

     TAX CALCULATION
     CIT PAYABLE = TAX RATE X ASSESSABLE INCOME

     Assessable             Total                Deductible                 Other                      Carried
     Income                 Revenue              Expenses                   Income                     Loss

     1. (Total revenue – Deductible expenses) is considered an income from main business activities.
     Such income is entitled to CIT incentives, if any.

     2. Normally, other forms of income are not entitled to CIT incentives, and thus, shall be subject to
     the standard CIT rate of 20 per cent. Other income includes gains from foreign exchange revaluation,
     income from disposal of fixed assets, interest income, ect. not related to main business.

     Tax Rates
     From 1 January 2016, the standard CIT rate is 20 per cent. The CIT rate for enterprises operating in
     exploration and mining of petroleum, gas, and other rare and precious natural resources shall
     range from 32 per cent to 50 per cent, depending on the project locations and conditions.

28                                              Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS

TAX INCENTIVES COMMENCEMENT RULE

Preferential tax rate
Generally, preferential tax rate is applicable from the first revenue-generation
year; except high-tech enterprises or projects.

Tax holiday
Generally, tax holiday is available from the first profit-making year or the fourth
revenue-generation year, where applicable, except high-tech enterprises.

BY LOCATION

                                                       CIT INCENTIVES
           ACTIVITIES
                                     PREFERENTIAL TAX RATE              TAX HOLIDAY

  With especiallly difficult        10% for 15 years          • 4 years of tax exemption;
  socio-economic conditions                                   and
• Economic Zones                                              • 50% reduction for the next
• High-tech Zones, including                                  9 years
concentrated information
technology parks established
under the Prime Minister’s
decision
• With difficult socio-economic     17% for 10 years          • 2 years of tax exemption;
conditions                                                    and
                                                              • 50% reduction for the next
                                                              4 years
• Industrial Parks (which are not   Not applicable            • 2 years of tax exemption;
located in the favorable                                      and
socio-economic locations)                                     • 50% reduction for the next
                                                              4 years

                                                                                             29
BY SECTOR
     The current incentive scheme is applicable for sectors that are prioritized for
     investment under the Government’s development policies.

                                                                           CIT INCENTIVES
                     ACTIVITIES
                   (for example)
                                                     PREFERENTIAL TAX RATE                       TAX HOLIDAY

      • High-tech enterprises (including           10% for 15 years                        • 4 years of tax
      science and technology enterprises);                                                 exemption; and
      research, application, and incubation of                                             • 50% reduction for
      hi- technology projects                                                              the next 9 years
      • Environmental protection
      • Investment for infrastructure
      development (water plant,
      power, road, port, etc.)
      • Software production
      • Supporting industries
      • Socialised projects in regions with        10% for whole project’s                 • 4 years of tax
      difficult/especially difficult               duration                                exemption; and
      socio-economic conditions                                                            • 50% reduction for the
                                                                                           next 9 years
      • Socialised project not located in          10% for whole project’s                 • 4 years of tax
                                                   duration                                exemption; and
      economic regions                                                                     • 50% reduction for the
                                                                                           next 5 years
      • Farming, husbandry, processing of          10% for whole project’s                 • Tax exemption and
                                                   duration                                reduction under
      regions; forestry in difficult regions;                                              incentives for location
      production of plant varieties, animal                                                (if applicable)
      breeds; production of salt; preservation
      of agriculture products, aquaculture
      products and foods, etc.

30                                               Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS

                                                               CIT INCENTIVES
                 ACTIVITIES
               (for example)
                                             PREFERENTIAL TAX RATE              TAX HOLIDAY

 • Farming, husbandry, processing of        15% for whole project’s
 agriculture and aquaculture products       duration

 • Manufacturing of steel, energy saving 17% for 10 years
 products, machinery and equipment
 serving agriculture, forestry, fisheries and
 salt production, traditional crafts, etc.

BY BUSINESS SCALE
Investment incentives are granted to large projects manufacturing projects
(excluding those in product manufacture subject to special sales tax or those in
mineral resources exploitation) having either:
1. Total capital of VND 6,000 billion or more, disbursed within 3 years since being
licensed with:
- Minimum annual revenue of VND 10,000 billion by the 4th year of revenue
generation at the latest; or
- Regularly employing more than 3,000 employees by the 4th year of operation at
the latest.
2. Total capital of VND 12,000 billion or more, disbursed within 5 years since being
licensed and using technologies being evaluated under the Law on Hi-technology,
and the Law on Science and Technology.

                                                               CIT INCENTIVES
                 ACTIVITIES
                                             PREFERENTIAL TAX RATE              TAX HOLIDAY

 • VND 6,000 billion capital project (1)    10% for 15 years             • 4 years of tax
                                                                         exemption; and
                                                                         • 50% reduction in tax
 • VND 12,000 billion capital project (2)
                                                                         for the next 9 years

                                                                                                  31
DEDUCTIBLE EXPENSES

     An expense might be deductible for CIT purpose if the following conditions are met:

             1                                                                                    2
                  Actually incurred and                             Supported by proper
                  relevant to the company’s                                 documents
                  business activities

                                                                                                 4
                  Payments above VND 20                                Not in the list of

             3
                  million must be supported                    non-deductible expenses
                  by bank payment vouchers
                  or deemed as made via
                  banks

     In addition, payments above VND 20                   cap of one-month average monthly salary;
     million must be supported by bank                    • Costs of raw materials, supplies,
     payment vouchers (or deemed as                       fuel, power and goods exceeding the
     made via bank) to be deductible.                     reasonable consumption levels as
                                                          stipulated by the Government;
     NON-DEDUCTIBLE EXPENSES                              • Interest on loans from non-economic
     Below are notable examples of                        and non-credit organizations exceeding
     non-deductible expenses:                             1.5 times of the interest rate announced
     • Depreciation expenses of fixed                      by the State Bank of Vietnam;
     assets not in accordance with
                                                          • Interest expenses exceeding 20%
     prevailing regulations, i.e. (i) not for
                                                          EBITDA for enterprises having related-
     business purpose; (ii) not supported
     by proper documentation; and (iii)                   party transactions;
     exceeding the regulated depreciation                 • Interests on loans corresponding to
     rates;                                               the portion of charter capital not yet
     • Labor expenses recorded but not                    contributed in accordance with registered
     actually paid or not stipulated with                 contribution schedule;
     clear conditions and amounts under                   • Periodical accrued expenses not paid or
     labor contracts, collective labor
                                                          not fully paid at the end of the period;
     agreements or company’s financial
     policies;
                                                          losses, inventory devaluation,
                                                          bad debts, product warranties or

32                                            Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS

construction works, vocational risks          activities. Losses from the transfer
not in accordance with the prevailing         of real estate, investment projects,
regulations;                                  rights to participate in investment
• Unrealized foreign exchange losses          projects (except for mineral
due to the year-end revaluation of foreign    exploitation and exploration
currency items other than account
payables;                                     from other business activities.
• Overhead costs allocated to the
Permanent Establishment (PE) by foreign       TAX DECLARATION AND PAYMENT
companies exceeding the amount                Enterprises are not required to
determined based on the revenue-based         submit the quarterly CIT declaration
allocation ratio;                             returns. However, provisional
• Contributions to voluntary pension          payments are still compulsory and
funds and purchase of voluntary pension       will be calculated and settled based
insurance, life insurance for employees       on best estimation. In case the
exceeding VND 3 million/person/month;

payment interests, etc.;                      the sum of provisional CIT payments
• Donations other than certain donation       is more than 20 per cent of the CIT
contributions for education, health care,
natural disaster or building charitable       excess of 20 per cent shall be subject
homes, etc.;                                  to late tax payment interest.
• Certain expenses related to the issuance,
purchase and sale of shares.                  prepared and submitted to the tax
                                              authorities within 90 days from the
LOSSES
Tax loss is carried forward within            tax liabilities arising from the tax
a maximum period of 5 years after
the loss-making year. The tax loss            payments made quarterly shall
generated from January 2009                   be settled within 90 days from the
must be carried forward consecutively         end of fiscal year.
even during the tax exemption period.         The standard tax year is the calendar
Carry-back of tax loss is not allowed.        year. However, enterprises are able to
Losses from incentive business                adopt a tax year, i.e. fiscal year, which
                                              is different from the calendar year
income from non- incentive                    upon notification to tax authorities.

                                                                                         33
PERSONAL INCOME TAX (PIT)
     OVERVIEW

      TAXPAYER            TAX RESIDENT                                                 TAX NON-RESIDENT

      Taxable             Worldwide income                                             Vietnam-sourced income
      income
      Tax rate on         Progressive rate (5~35%)                                     Flat rate (20%)
      employment
      income
      Tax calculation Assessable Income = Taxable Income                               Assessable Income = Taxable
                      - Deductions                                                     Income
      Deduction                Personal deduction                                      No deduction is claimed
                               Dependent deduction
                               Compulsory and (capped) voluntary
                               insurance contribution
                               Charitable or humanitarian donation
      Tax relief          Foreign tax credit is allowed on the foreign-                Tax treaty exemption may be
                          sourced income                                               applicable if conditions are met

     TAX RESIDENCY
     An individual is a tax resident if he/she
     meets one of the following conditions:
     • Residing in Vietnam for 183 days or
       more in 12 consecutive months from                                                    Present in
       the first arrival date or in a calendar                                               Vietnam for
       year;                                                                                183 days or
     • Having a registered permanent                                                           more
       residence in Vietnam as recorded by
       a temporary/permanent residence
       card;
     • Having rented a house in Vietnam
                                                                           House lease                   Permanent/
                                                                          contract of 183                 Temporary
       with a term of 183 days or more
                                                                           days or more                 residence card
       within a tax year.
     Note: An individual having registered address
     or rented house over 183 days but residing less than
     183 days in Vietnam may still be a tax resident if being
     unable to prove residency of another country.

34                                                    Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS

Tax residents are subject to PIT in        remuneration and fringe benefits
Vietnam on their world-wide income         whether in cash or in kind. However,
regardless of where such income is         certain income items are not subject to
paid, earned or charged. Worldwide         tax, typically:
employment income is subject to tax at     • Once-off relocation allowances for
progressive tax rates ranging from 5       example, paid to foreigners first time
per cent to 35 per cent depending on       comes to work in Vietnam; or Vietnamese
income level.                              citizens residing overseas return to
Individuals who do not satisfy any of      work in Vietnam;
the above condition are classified as       • Transportation allowance: from
non-residents and subject to tax only      home to work and vice versa under the
on Vietnam-sourced income. The rate        Company’s policy;
applicable to tax non-residents’           • Wedding and funeral allowances
Vietnam- sourced employment income         under the Company’s policy and being
is currently fixed at 20 per cent.          capped at one-month average monthly
Both residents and non-residents are       salary;
also subject to PIT in Vietnam on          • Airfare in kind one round trip per
incomes of non-employment nature           year for employee to travel back to
which are taxed at different flat rates.     home country;
                                           • Tuition fee in kind for children to
TAX YEAR                                   study from nursery to high school level
The Vietnamese standard PIT reporting      at host country;
period is the calendar year. For foreign   • Insurance premium: voluntary
individual, the fist tax year will be the   non-accumulative insurance for health
12-consecutive-month-period from the       & death;
first arrival date in Vietnam in case the   • Membership/ healthcare/ entertainment
individual is present in Vietnam for       in kind & non-identified beneficiary;
less than 183 days during the first         • Supports for cure of fatal diseases to
calendar year. From the second year,       employees (and close family members);
the tax year will be the calendar year.    • Per-diem: Fully exempted if paid
                                           under the Company’s policy;
EMPLOYMENT INCOME                          • Housing allowance: In excess of 15
Employment income includes                 per cent of total taxable income;
salaries and wages, and all forms of

                                                                                      35
• Uniform allowance in cash below                 TAX RELIEF
     VND 5 million/year or in kind;                    FOREIGN TAX CREDIT
     • Overtime in excess of the normal rate.          A tax resident is entitled to claim
                                                       for Foreign Tax Credit (i.e. the
     NON-EMPLOYMENT INCOME                             amount of tax paid overseas
     Non-employment income includes                    according to overseas regulations)
     income from business, capital                     against their Vietnamese PIT on the
     investment, inheritance, gifts,                   foreign-sourced income; however, the
     prize winnings, transfer of capital,              creditable amount shall not exceed the
     transfer of real estate, sale of shares/          Vietnamese PIT payable according to
     securities, royalties, franchising,
     copyrights, etc. which are subject to             income arising overseas.

                                                       TAX TREATY RELIEF
     TAX DEDUCTIONS                                    A tax non-resident may enjoy PIT
     Tax residents of Vietnam are entitled to          exemption in Vietnam via tax treaty
     the following deductions from taxable             application if certain conditions
     income:                                           under the treaty are met. To enjoy
     • A personal deduction of VND 9 million
     per month;                                        are required.

     spouse, children and other eligible
     persons including parents in the amount           TAX RATES
     of VND 3.6 million per dependent per              Employment Income
     month (provided that certain conditions
     are met);                                               MONTHLY                        TAX RATE
                                                            ASSESSABLE
     • Eligible charitable or humanitarian                                                             NON-
                                                             INCOME              RESIDENTS
     donations;                                            (million VND)                             RESIDENTS
     • Compulsory social insurance,                           Up to 5                5%
     health insurance and unemployment                     Over 5 to 10              10%
     insurance paid by employees; and                     Over 10 to 18              15%
     • Contribution to private pension                                                                  20%
                                                          Over 18 to 32              20%
     fund made by the employer and the
                                                          Over 32 to 52              25%
     employee capped at VND 1 million
                                                          Over 52 to 80              30%
     per month pursuant to the Ministry
     of Finance’s guidance.                                  Over 80                 35%

36                                         Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
Non-Employment Income
(applicable to both residents & non-residents)

   NON-EMPLOYMENT
                                 TAX RATE
       INCOME
                           1% - 5% on revenue
   Business Income         *Depending on type
                               of business
  Capital investment,
i.e. interest, dividends
                                   5%
    (except for bank
         interest)
                           20% on net gains for
                           tax resident; 0.1% on
    Capital transfer
                             sales proceeds for
                                non-resident
 Securities / JSC share       0.1% on sales
       transfer                 proceeds
  Real estate transfer     2% on sales proceeds
 Income from winning
   prizes (in excess of            10%
    VND 10 million)
Income from copyright
 (in excess of VND 10              5%
        million)
 Income from royalty/
 franchising (in excess            5%
   of VND 10 million)
   Income from gifts /
       inheritances
                                   10%
  (in excess of VND 10
         million)

                                                   37
TAX DECLARATION AND PAYMENT
     Each individual taxpayer must register for a personal tax code prior to the time
     limit for his first PIT filing. In case the employer makes tax registration for
     employees earning income from salaries or wages and tax registration for
     employees’ dependents, the registration deadline shall be within 10 working
     days before the submission of annual PIT finalization return.

      Monthly                     TYPE OF INCOME                                   DEADLINE

                            Employment income received
                            from Vietnamese employers               20th day of the following month
                                             ′s return)

     Quarterly              Employment income received
                            from Vietnamese employers               30th day of the following quarter
                                             ′s return)
                            Employment income received

                            via Company′s return)
                                                                    10th day from the date of
                          Non-employment income
                                                                    arising income

     TAX FINALIZATION
     Tax residents are required to file the PIT finalization return and settle outstanding
     PIT liabilities within 90 days from the end of the tax year.

     Residents foreign expatriates terminating their Vietnam assignment must file
     PIT finalization dossiers prior to their departure dates (or within 45 days from
     departure dates in case of authorization following a recent specific guidance)

38                                       Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS

VALUE ADDED TAX (VAT)
SCOPE OF APPLICATION
VAT is imposed on goods and services used for production, trading and
consumption in Vietnam (including those purchased from overseas
organizations and individuals).

TAX RATES
There are three types of VAT treatment: non-taxable items; items not required to
declare VAT and taxable items (at 0 per cent, 5 per cent and 10 per cent VAT rate).
Below are some notable cases:

 NON-TAXABLE
 • Land use rights;
 • Insurance related to human;
 • Loan, credit services;
 • Education and vocational training according to prevailing regulations;
 • Medical services;
 • Machinery and equipment not locally produced, imported for some specific purpose;
 • Temporarily imported goods;
• Capital transfer transactions between non-tariff zones and overseas;
 • Intellectual property rights, software (except exported software);
 • Unprocessed or semi-processed products of cultivation, agriculture, aquaculture; animal
 breeding stock, seedlings, salt products, etc.;

 • Imported goods/services for humanitarian aid;
 • Exported products directly processed from main materials being natural resources and/ or
 minerals whose total value plus energy cost makes up at least 51% of the prime cost.

                                                                                              39
DECLARATION NOT REQUIRED
     • Compensation, financial income;

     • Project transfer;
     • Transfer of assets within a company and dependent units;
     • Capital contribution by assets;
     • Commission for some agent services.

     TAXABLE

                           Export goods and services;

     0%                    International transportation;
                           Aviation and maritime services provided either directly for
                           foreign entities or through agents

                           Clean water, pesticide, services for digging, embanking,
     5%                    dredging of canals, agricultural machinery and equipment,
                           sugar and by-products, medical equipment, teaching aids,
                           artistic, sports activities, etc.

     10%                   Standard VAT rate, applicable to goods and services other
                           than those mentioned above

40
D TAXATION AND CUSTOMS

TAX CALCULATION                                          CREDIT METHOD
For general business activities, VAT                     The credit method is adopted by
liabilities must be paid to local tax                    enterprises maintaining complete
authorities where general business                       books of accounts, invoices and
activities take place while for                          documents in accordance with
imported goods, VAT liabilities will                     relevant regulations, including:
be collected by customs authorities                      • Enterprises with annual revenue
upon importation.                                        subject to VAT of more than VND 1 billion;
There are two methods for VAT                            • Enterprises in other cases who
declaration: Credit method and                           voluntarily register for VAT declaration
Direct method.                                           under credit method.
• Credit method: VAT liabilities are
calculated by offsetting input VAT
                                                         VAT calculation under credit method:
with output VAT;
• Direct method: VAT liabilities for                        VAT                 OUTPUT                INPUT
specific goods and services are                            PAYABLE                VAT                   VAT
calculated by using the deemed VAT
rates.

  OF WHICH          Output VAT shall be equal to the total VAT on goods or services sold as stated
                     in the VAT invoice.
                    Input VAT shall be:
                    - VAT amount as recorded in all VAT invoices for the purchase of goods or services;
                    - VAT amount stated on receipts for VAT payment on imported goods;
                    - VAT amount stated on receipts for VAT payment on behalf of foreign
                    contractors.
In order to claim deductible input VAT, taxpayers must obtain the following
documents for each type of goods/services purchased:

                                        GOODS/SERVICES                                   PAYMENTS ON
                                                                    IMPORTED
                                           LOCALLY                                     BEHALF OF FOREIGN
                                                                     GOODS
                                          PURCHASED                                      CONTRACTORS
 VAT invoice

 VAT payment receipt
 (*) Non-cash payment voucher
 Customs returns

(*) Non-cash payment vouchers are only required for payments of VND 20 million or more (inclusive of VAT).

                                                                                                              41
In case the credit method is applied, taxpayers should note the following principles
     regarding credits:

                VAT                    OUTPUT                            CORRESPONDING INPUT

      Non-taxable                        Nil                                Not eligible for credit
      Declaration not required           Nil                                    May be credited
      Taxable (0%)                       Nil                                    May be credited
      Taxable (5%, 10%)                  Yes                                    May be credited

     If goods/services/fixed assets are used for the production/trading of both taxable
     good/services and non-taxable goods/services, then only the input VAT of
     goods/services/fixed assets used for the production/trading of taxable goods
     may be used for credit.
     Taxpayers must separate the credit-eligible input VAT from non-credit-eligible
     inputs. Otherwise, the input VAT shall be credited based on the ratio of the
     revenue of goods/services subject to VAT and not required for VAT declaration
     to the total revenue from sales of goods/services.

     DIRECT METHOD
     The direct method is adopted in the following cases:
     • Enterprises with annual revenue subject to VAT of less than VND 1 billion
     unless they voluntarily register for credit method;
     • Enterprises not maintaining proper books of accounts and foreign
     organizations/ individuals carrying out business activities not regulated under
     the Law on Investment;
     • Business individuals and households;
     • Enterprises engaging in trading in gold, silver and precious stones.
     VAT calculation under direct method:

      VAT PAYABLE            REVENUE                 VAT RATE

              OF WHICH, THE      • 1% Distribution; supply of goods
        APPLICABLE VAT RATES     • 5% Services; construction excluding supply of materials
                   SHALL BE:     • 3% Manufacturing; transportation; services attached to the supply
                                 of goods; construction, including supply of materials
                                 • 2% Other cases

42                                             Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS

For those enterprises engaging in the business of gold, silver and precious
stones, VAT payable shall be calculated as 10% of the added value. The value
added of gold, silver, and precious stones equals their selling price minus their
purchase price which are recorded by proper VAT invoices or payment receipts/
vouchers.

TAX DECLARATION AND PAYMENT
Monthly VAT declaration shall be applied in most cases and is to be filed by the
20th day of the following month.
Quarterly VAT declaration is applicable to taxpayers with total turnover from
sales of goods/ services of the preceding year not exceeding VND 50 billion. The
deadline for quarterly VAT filing is by the 30th of the following quarter.
Where the taxpayer are eligible for quarterly VAT declaration wish to instead file
VAT monthly, they shall submit a notification to tax authorities not later than the
deadline for VAT declaration in the first month of the tax year.
VAT finalization is not required.

TAX REFUND
From 1 July 2016, taxpayers can only claim VAT refund from tax authorities in
the following common cases:
• New projects of taxpayers who adopt the VAT-deduction method that are in the
pre-operation investment period, and with a total accumulated input VAT
exceeding VND 300 million (some exceptions may apply);
                                              f
local sales) with an amount exceeding VND 300 million (but capped at 10% of export
revenue), except:
   goods imported then re-exported;

   Customs Law.

From 1 February 2018                                 146/2017/ND-CP in addition
to the above, business establishments importing and then exporting goods into

VAT exceeding VND 300 million are re-allowed to enjoy VAT refund.
E-Invoice
Currently, taxpayers can choose between paper invoices or e-invoices.
However, e-invoices must be used for all enterprises from 01 November 2020.
                                                                                     43
FOREIGN CONTRACTOR WITHHOLDING TAX (FCWT)
     TAXPAYERS
     FCWT is applicable to foreign organizations/individuals who conduct
     business or earn income in Vietnam on the basis of a contract/agreement
     with (i) a Vietnamese party (as a main foreign contractor); or (ii) another
     foreign contractor to implement part of the contractual scope of works (as a
     foreign sub-contractor). FCWT is a tax collection mechanism that normally
     comprises both CIT and VAT, but may also include PIT for payments to foreign
     individuals.

     SCOPE OF APPLICATION

                               SUBJECT TO FCWT                             NOT SUBJECT TO FCWT

                      Services provided or consumed               Services provided and consumed
      Services
                      inside Vietnam                              outside Vietnam

                      Supply of goods accompanied by              Supply of goods not accompanied by
                      services                                    services and the delivery point
      Goods
                      Supply of goods in which the delivery       is overseas or outside border gate of
                      point is inside Vietnam                     Vietnam
                      Construction & installation
                      Interest
                      Royalties
      Others          Trademarks
                      Penalty/compensation
                      Income from transportation activities
                      Security transfer

     IMPORTANT NOTE
     There is no dividend withholding tax in Vietnam on corporate shareholders.

     TAX DECLARATION
     There are three methods for FCWT declaration including: (i) Deemed method; (ii)
     Hybrid method; and (iii) Declaration method.
     While the Deemed method can be applied by foreign contractors without any
     specific conditions (and is the most common method, which can be applied), the
     Hybrid method and Declaration method require foreign contractors to satisfy the

44                                         Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS

following conditions:
• Maintaining a contract duration of 183 days or more;

• Applying the Vietnamese Accounting System.

 NO. CRITERIA           DEEMED METHOD           DECLARATION METHOD HYBRID METHOD
 1    Filing            • Vietnamese Party      • Foreign Contractor       • Foreign Contractor
      responsibility
 2    Compliance
      timeline
      VAT declaration   • 10 days from          • Monthly                  • Monthly
                        payment date; or
                        • Monthly
      CIT declaration   • 10 days from          • Quarterly                • 10 days from
                        payment date; or                                   payment date; or
                        • Monthly                                          • Monthly
      Finalization      • 45 days from          • 90 days from the end of • 45 days from
                        contract termination                              contract termination
                        date                    • 45 days from contract   date, applied for CIT
                                                termination date
 3    Tax calculation
      VAT               • VAT = Taxable         • VAT = Output VAT –       • VAT = Output VAT –
                        income x deemed         Input VAT                  Input VAT
                        rate
      CIT               • CIT = Taxable         • CIT = Taxable income x   • CIT = Taxable
                        income x deemed         CIT rate                   income x deemed
                        rate                                               rate
 4    Auditing          • No                    • Not compulsory           • Not compulsory

                        • Tax liability would
      Revenue/                                  • No detailed              requirements to
 5                      be withheld before
                                                requirement
                        remittance
                                                                           before remittance

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TAX RATES
     In case of the deemed method, the following rates shall be applied for some
     notable cases:

                 ACTIVITIES                          VAT RATE                                CIT RATE

      Supply of goods in Vietnam or       Exempt                                1%
      associated with services
      rendered in Vietnam (including
      in-country export- import,
      distribution of goods in Vietnam
      or delivery of goods where the
      seller bears risk relating to the
      goods in Vietnam)

      Services                            5%                                    5%
      Supply of goods attached to services where the value is separated:
        Goods portion                     Exempt (for goods)                    1% (for goods)
        Services portion                  5% (for services)                     5% (for services)
      Supply of goods and some            3%                                    2%
      services where value is not
      separated (*)
      Construction                        3% or 5%                              2%
      Loan interest                       Exempt                                5%
      Income from royalties               Risk of being taxed at 5%             10%
      Other cases where value is not      Highest rate applicable               Highest rate applicable
      separated

46                                             Doing business in Vietnam 2020. Investing in Vietnam, Engaging the world
D TAXATION AND CUSTOMS

DOUBLE TAXATION AVOIDANCE
AGREEMENT
Vietnam has a solid tax treaty            language and notarized, along with
network, with most treaties following     various Vietnamese Government
the OECD - model treaty. Treaties         forms. In the case the statutory
generally provide for relief from         deadline above is missed, taxpayers
double taxation on all types of           can still retain their right to claim tax
income, limit the taxation by one         treaty benefits as long as the notification
country of companies’ residents in the    is submitted within 3 year from the
other and protect companies’              tax payment due date.
residents in one country from             The documentation can be submitted
discriminatory taxation in the other.     before the payment is made and
Vietnam’s treaties generally contain      Vietnamese tax is withheld, or
OECD-compliant exchange of                alternatively, after tax has been
information provisions.                   withheld, in which case, the applicant
Tax relief under Double Taxation          would be seeking a tax refund.
Avoidance Agreement (DTA)                 As of August 2019, Vietnam has signed
application is not automatically          DTA agreements with 80 countries and
granted. Instead, foreign taxpayers       territories around the world. The table
are required to submit certain            below contains the withholding tax
notification dossiers to Vietnamese        rates that apply to dividend, interest
tax authorities within 15 days prior to   and royalty payments by Vietnamese
the tax payment deadline.                 companies to non-residents under
Notification dossiers normally include
tax residence confirmation, which
                                          a number of countries.
must be translated into the Vietnamese

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